Friday, March 28, 2008

Peak "Surge Success"

NOTE: Early post this week as I'll be traveling for the next few days. Next post will be Monday, April 7th.

The much hailed success of the “Surge” of American forces in Iraq, led by Gen. David Petraeus, is beginning to fall apart. It’s important to understand why it worked (temporarily), why it’s falling apart now, why this will be a gradual disintegration, and why this was inevitable all along.

The surge provided impressive initial results. Why? While many cite the shiny new & improved counterinsurgency approach implemented by Gen. Petraeus, which did manage to seize upon a period where Shi’a groups were temporarily electing cease fire over insurrection for reasons discussed below, there is a potentially more significant trend behind the (until recently) reduction in violence. What has often been termed the “Sunni Awakening,” where Sunni insurgents miraculously decided that violence is counter-productive and that they should join with the Americans and fight al-Qa’ida, is probably more accurately understood as the “short-sighted Sunni pay-off.” The Americans, acting both independently and through the Iraqi government, leveraged Sunni tribal leaders, provincial officials, and existing militia leaders by offering them a deal they couldn’t refuse: stop fighting us, put up at least a convincing guise of “fighting al-Qa’ida,” and we’ll pay you huge sums of money, arm you, and give you legitimacy. This worked great, especially considering that the Shi’a militas that had been conducting what was essentially ethnic cleansing against Sunni neighborhoods had either 1) finished successfully, or 2) declared self-imposed cease fires to improve their political position within the Shi’a political block. Absent the ongoing catalyst for tit-for-tat sectarian attacks, the Sunni seized upon a huge opportunity. Seizing upon America’s inability to sacrifice without payoff for more than two to four years (as driven by domestic political cycles), the Sunnis knew that they could use America’s desire for some kind of positive news about Iraq now to arm and prepare themselves for the inevitable conflict with the Shi’a down the road. As long as the sectarian violence remains in the background, the Sunnis will continue to take all the arms and funding they can get, and are happy to temporarily refrain from violence against Americans in the mean time. This is, of course, a generalization, as many Sunni groups, to include al-Qa’ida in Iraq, haven’t bought into this program, but to the extend that the Surge has produced results, this has been the main drive.

The success of the surge is falling apart now, in part, because Moqtada al-Sadr is seizing a political opportunity presented by the weakened Prime Minister Maliki. Maliki is either greedy or simply short-sighted in his quest to please his imperial overlords, hoping to show that his government was capable of taking charge of its own security just in time for the Petraeus report to the US Congress. Sadr’s Mahdi Army recently extended its self-imposed cease fire, but thanks to Maliki’s misstep can now claim more legitimate self-defense. So Sadr is using this opportunity to “justly” demonstrate his capability to drag Iraq into chaos and quite possibly remove Maliki from power by resisting the government from Baghdad south to Basra.

What is Sadr’s plan? I haven’t spoken to the man recently, but my guess is that he plans to demonstrate his ability to destroy the semblance of order recently prevailing in Iraq, and then just as quickly to demonstrate his ability to restore that order. This serves twin purposes. First, it allows Petraeus to testify to Congress that the surge continues to work without getting laughed out of the room. This ensures the ongoing reduction in American forces, which continues to increase Sadr’s relative strength and freedom of operation. Second, and most important, it creates a very powerful negotiating platform for Sadr. The Maliki government is holding on by a string as it is, and will not be completely dependent on Sadr not exercising his demonstrated capability to bring it down. This fits with Sadr’s past behavior—he is a politician, not a warrior, at heart, and uses his military force to expressly political ends. He has learned from his mistakes in the past where he pressed for pitched battles with superior forces that he could not win. This time he is walking away from a prolonged fight he quite possibly could win in Basra and the South because he realizes that the viable threat of re-starting that battle at any time has more political weight than actual victory in that battle.

What does Sadr hope to achieve with this political maneuvering? There are many possibilities, but I think that he wants to keep the central government weak, teetering on the brink of collapse, dependent on him for support, until he can get his plan for Southern Iraq through the assembly: create one “super federation” of southern Shi’a provinces rather than the alternate plan of creating several individual Shi’a federations, each comprising only one or two provinces. This is critical for two reasons: 1) while Sadr relies on Iran for support, he needs a single Shi’a federation of sufficient size to effectively stand up to Iran, as well as to effectively stand up to the remnant central government in Baghdad. It’s easy to play divide and conquer against many smaller southern federations, and it also enhances the relative position of the central government. 2) Sadr needs to unify Iraq’s southern oil infrastructure inside a single federated region to bring it truly under the control of that region, otherwise the central government will retain effective control of export revenues by virtue of being the intermediary in balancing the separable interests of the various southern federations through which the oil must run. It’s worth noting here that Sadr will gain significant support for this approach to a de-facto oil law from the Kurds, who have already formed just such a super-federation of provinces for the purpose of unifying control of the northern oil resources, and will support any plan that validates their hold rather than supports the central government’s claims. With Sadr in a position of power in the current central government (where he will likely accept a “Sunni awakening” style “fund and legitimize my militias in exchange for peace” deal of his own design), and in a future position of power in the southern super federation, Sadr’s Mahdi Militia will gain the same funding and legitimization of the Kurdish Peshmerga, and with it the ability to forcibly control the southern super-federation and its oil revenue.

If this strategy is what Sadr has in mind, then it makes sense to me to demonstrate (at least to internal audiences) that he can cause great chaos in the South, but then to quickly call a cease fire and cash in his political capital. It makes sense to me to push this cease fire a few days past Maliki’s Saturday (March 29, 2008) deadline to clarify who is in charge, but probably not to wait far into April before ending the uprising.

All of which brings me to why the surge was doomed to failure in the first place. While Petraeus’s updated counterinsurgency strategy was elegant and interesting, it never stood a chance because it does not address (or comprehend) the foundational problem of mutually exclusive overlap. I’ve been writing about this since immediately after I returned home from the Persian Gulf in 2004 as it creates the post-colonial terrain upon which everything else in Iraq must be surveyed. Mutually exclusive overlap is the result of the ebb and flow of empire over time, and must be seen as a four-dimensional problem. Since the Sykes-Picot Accord of 1918 arbitrarily drew lines in the Middle-Eastern sand and created notional “Nation-States” where none had been before, colonial powers (as well as those later powers practicing economic colonialism) have pitted one ethnic group against another to most effectively control their far-flung empires. This is what I call the “exploitation model,” and typically involves empowering a minority group to rule a territory with the implicit understanding that the minority group must act according to the will of the colonial power or be abandoned to the mercy (or lack thereof) of the majority. In Iraq, this took the form of long-standing British and then American support for a Sunni minority government in a Shi’a majority territory. The problem of mutually exclusive overlap arises with the development of Iraq’s vast oil potential. The Sunni majority enjoyed several decades of wealth and prosperity, subsidized entirely by their disproportionate share of oil export revenue. Now that the Shi’a are in power, they expect at a minimum a proportionate share of Iraq’s oil revenue (60%), which is virtually all of Iraq’s southern oil production as the Kurds have geographic and de-facto control over Iraq’s northern oil reserves which make up about a third of Iraq’s pre-war oil production potential. So this creates a situation where the Sunni society, economy, and psyche in Iraq is predicated on the subsidy of more than half of Iraq’s oil production, because they have enjoyed exactly this for decades. Likewise, the newly empowered Shi’a have an expectation of more than half of oil production. For both groups this is a non-negotiable minimum, and they will fight for what they consider their birthright. Unfortunately, this represents mutually exclusive overlap—with both groups expecting, at a minimum, essentially all the oil production available outside the Kurdish zone, they cannot both be satisfied. This cannot be solved by increasing Iraq’s oil production because the expectations are proportional, not empirical, and will only suffice to provide a relative advantage, not actual wealth, even if Iraq’s production were to reach 8 million barrels per day (a wildly optimistic figure four time current production) due to their growing population and dire economic problems. There is no nice way to put it: this problem will not be solved, and will result in conflict—the only question is when.

The Petraeus surge worked, either through happenstance or devious planning, by scheduling simultaneously the period when the Sunni factions realized they should pause and take advantage of an American-provided opportunity to re-arm for this coming conflict, and the time when the Shi’a factions realized they should pause to consolidate for the same. The surge is now disintegrating because the value to both sides of further “strategic pause” is winding down. Moqtada al-Sadr’s maneuvering in the South, combined with a gradual increase in Sunni violence around Baghdad, signal the transition to the next phase. This next phase may be remarkably contained, or it may bring Saudi Arabia and Iran into much more direct involvement. What is relatively certain is that neither 45,000 nor 145,000 American troops on the ground will be able to keep the peace. We entered this conflict with an almost awe-inspiring naïveté, and I have little confidence that we’ll figure out how to exit any more gracefully.

Further Reading: See John Robb's post on Moqtada al-Sadr's strategy in Iraq HERE. Also see my suggestion for solving Iraq's problem with mutually exclusive overlap (yes, gardening *is* the solution...)

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Monday, March 24, 2008

A Better Gas Tax?

This isn’t an argument about whether or not taxes—particularly energy taxes—are “good” or “bad.” Rather, this essay has a narrow focus: IF we’re going to attempt to reduce gasoline demand through taxation, what is the best way to do it?

Here’s my somewhat counter-intuitive theory: to most effectively reduce long-term gasoline demand, gasoline taxes should increase, not decrease, long-term price volatility.

First, let’s look at European gasoline taxes. In the UK, gasoline tax is .50 GBP per liter plus 17% VAT ($3.75/gallon before VAT, $4.42/gallon with VAT). In Germany it’s .65 Euro per liter plus 19% VAT ($3.80 per gallon before VAT, $4.53/gallon with VAT). Compare that with US taxes, which range from a low of $0.26/gallon (Alaska) to a high of $0.63/gallon (California). The much higher European taxes operate to reduce price volatility because they remain static in the face of changes in the underlying price of gasoline. For example, if taxes effectively double the price of gasoline, then a 10% increase in the pre-tax gasoline price results in only a 5% increase in the after-tax price of gasoline paid by the consumer.

Why does price volatility matter? Let’s pretend that individual consumers consciously perform risk-management analysis on their future gas requirements (in decisions such as where to live or what car to drive). In that calculus, the theoretically rational consumer would look at the gas requirement of a purchase at today’s gas price (say, the gas cost of a daily commute). This consumer would also consider the possibility that gas prices would increase or decrease, and calculate the present value of these changes. The key question here is not whether gas will get cheaper, because that only results in making a presently affordable choice still affordable. Rather, the key question is whether it is possible that gas will get so expensive as to force the consumer to forfeit the presently affordable choice. Therefore, the potential for volatility making gas cheaper won’t spur an increase in present demand choices to the same extent that the potential for volatility making gas more expensive will reduce the present demand choices.

Here’s an example. You’re looking in to buying a moving, and the new location is 10 miles (each way) farther to your job. You drive a car that gets 20 mpg (only for the sake of simpler math). If present gas prices are $3/gallon, and you commute to work 200 days per year, then this new location will cost you $600/year more than your old location. If you assume that volatility is low—say, that prices can only move by a factor of 2 either way—then the most you could save is $300/year (at $1.50 gas), and the most additional expense would be $600/year (at $6 gas). However, if volatility is extreme—say a factor of 10 either way—then the most you could save is $540 (at $.30 gas), and the most additional expense would be $6000/year (at $30 gas). The second scenario—more assumed potential for price volatility—will have a greater demand-reducing effect on today’s choices than does the low-volatility assumption because the risk of rising prices is much more potentially damaging than the potential benefit of falling prices.

It’s difficult to compare European and American gas demand (especially the elasticity of that demand) because the culture and built-environment are so different. However, assuming everything else is equal, what happens when the underlying cost of wholesale (pre-tax) gasoline goes from $2/gallon to $4/gallon? In Europe, assuming a gas tax of $5/gallon, the price rises from $7/gallon to $9/gallon—a change of 28.6%. In America, assuming a gas tax of $.50/gallon, the price rises from $2.50/gallon to $4.50/gallon—a change of 80%. When contemplating a consumer choice such as what car to buy (and how much to weigh fuel efficiency) or how long a commute is affordable, the higher volatility regime necessitates that gasoline demand will play a higher role in that decision, all things being equal.

What does this mean? It tells us that, IF the goal of a gasoline tax is to cause consumers to make choices that reduce gasoline demand, then that tax should operate to increase volatility. One way to do this is to make the tax per gallon a function of the price of that gallon of gasoline—for example, make taxes 100% of the wholesale price of exchange traded gasoline on a week-to-week basis. This would, nearly, double the volatility already present in wholesale price swings, whereas setting gasoline tax at a fixed level equal to the price of today’s wholesale price of gasoline (and not adjusting it continually as that price changes) would effectively halve volatility.

So far, this analysis has made one essential assumption—that consumers will rationally consider the risk inherent in future gasoline price swings, and will adjust their risk calculations based on the impact of a changing tax regime. Surely that won’t be universally true, but, in addition to at least some of the general public, more sophisticated businesses will should be able to understand this (especially when the policy is explicitly labeled as intending to increase volatility), and it can be communicated to the public in general as the rationale behind a shift in tax regimes. Getting Americans to consider a gas tax increase as a good idea, of course, is an entirely separate matter!

Do examples from the real world validate this notion that increased price volatility reduces the demand for a commodity? I think it does, at least within the world of energy. As I recently observed, gasoline consumption choices in Germany seem to actually be moving away from efficiency (though I can’t show that this is more than correlation based on anecdotal evidence). Within the US, a recent report by Deloitte concluded that US utilities are focusing on “demand management” and energy efficiency rather than investing in new generating capability precisely because there is increasing uncertainty over the future of regulations on greenhouse gas emissions. The Deloitte report suggests that increasing volatility leads directly to increasing efforts at demand reduction.

While I’m the first to admit that gas taxes are only a preliminary step to dealing with Peak Oil, if we’re going to use them for the purpose of demand reduction, we should do so in an efficient—rather than counter-productive—manner. A common adage is that gas tax must sting in order to work—and a tax that is designed to increase volatility is a tax that is more effective at stinging. Gas taxes should be variable and a percentage of the current underlying price of wholesale gasoline in order to enhance, rather than reduce, the consumer’s exposure to volatility. The pessimist in me realizes that this is very unlikely in America (I think it’s more likely that gas taxes are rolled back to pander to the near-term concerns of voters). Maybe the Europeans will listen—they explicitly use gas tax to reduce demand, and seem to understand that such a tax must sting to work, but currently tax in a counter-productive fashion.

Friday, March 21, 2008

The Problem of Growth

**Update: A unified and condensed version of "The Problem of Growth" is now up at The Oil Drum--readers may find the comments there of interest.

The fifth and final essay in "The Problem of Growth" is published (see links to all five essays below). This summary post is intended to place the series within the context of the problem it addresses, and will serve as an introduction to those who are getting to the party a bit late:

"The Problem of Growth" addresses what I see as the critical problem facing humanity: the structure of our civilization, its inherent need to grow (and therefore its unsustainability), and how we can fix the problem realistically. My proposed solution is, by definition, quite radical, because it rejects the prevalent problem-solving mechanism of modern technology: that we can use technology to continually mitigate the symptoms, rather than take the difficult (but, as I will argue, necessary) step of actually identifying and addressing the underlying problem.

Of course, it is certainly possible to "fix" the problem by continually developing more and better high technology "solutions" to each symptom of the underlying problem as it arises. This is what I call the "Roddenberry" solution, after the Star Trek creator Gene Roddenberry. It consists of addressing symptoms through high-tech fixes, though it often claims to be addressing causes--in fact, it fails to either identify the underlying cause, or to address that underlying cause in any fundamental way.

It may be possible to successfully mitigate every symptom of our civilization's greatest problem as it arises through newer and shinier technology--we can, by definition, never know the truth of this proposition. I submit, however, that anyone who "believes" that it can or cannot happen is acting on faith, not reason. I personally view the potential for success of this "Roddenberry" proposition as very unlikely, primarily because success requires an unending streak of successes while failure simply requires failing to address any one key symptom; secondarily, I see this approach failing because I see most of the attempted "solutions" under the "Roddenberry" approach as actually contributing to the underlying problem; finally, I dislike this approach because the requisite faith in the technological solution necessary to believe that it will continue to work indefinitely, and not merely pass on a truly insurmountable problem to our grandchildren or great-great-grandchildren, seems eerily akin to some talking-sky-god religion. As Arthur C. Clarke noted in his Third Law, any sufficiently advanced technology [here, one that could continue to solve our problems indefinitely] is indistinguishable from magic.

That said, if we continually rely on technology to facilitate infinite growth on a finite planet, I think we're quite likely to be disappointed. I won't go so far as to say that "I know we'll fail" because that would rejecting the possibility that I'm wrong. Anyone who takes a position on this topic on faith--that is, anyone who "knows" that they're right or that I'm wrong--is, I suggest, acting irrationally. Even if you think it's very, very likely that technology and human innovation will continue to solve our problems, if you can't admit that there is a possibility that you're wrong, then you're just not being rational. If we can get people to rationally discuss the problems facing civilization (tall order, I admit), then I think we have a decent chance of solving them.

Below are links to each of the five essays in "The Problem of Growth" series:

Part 1: Hierarchy Must Grow, and is Therefore Unsustainable
Part 2: Hierarchy is the Result of Dependency
Part 3: Building an Alternative to Hierarchy: Rhizome
Part 4: Implementing Rhizome at the Personal Level
Part 5: Implementing Rhizome at the Community Level

Thursday, March 20, 2008

Food for Oil Program

This would be pretty funny if it wasn't so likely to happen.

Monday, March 17, 2008

The New Colonialists?

My copy of The Economist arrived yesterday, with a headline proclaiming “The New Colonialists: A 14-Page Special Report on China’s Thirst for Resources.” The Economist’s argument that developing countries like China’s “no-strings attached” style of neo-colonialism is fundamentally flawed. In reality, what the Economist can only recognize as something akin to what was colonialism is actually driven by two related phenomena: a new mercantilism and the constitutional failure of “free-trade” ideology.

A new mercantilism is gripping the globe, and it is not driven by China, but rather by the scarcity of the very resources that fuel economies like China. There is a critical difference between the Economist’s assertion that China’s resource ventures are “no-strings attached” and the mercantilist reality. China’s economy is best where it can leverage its massive labor force, not at venturing into new territory. If it was confident that it could simply buy all the oil or LNG that it wants at market prices, it would be better off sticking to what it does best, and it knows this. The reason it is venturing into energy exploration in Africa and elsewhere, then, is because it recognizes the mercantilist reality of the coming century: there won’t be enough energy (or other raw materials) to fuel continued economic growth around the world, so those who can corner their own share of the market (and improve the odds of continued economic growth in their corner of the world) are doing so. China initially tried to wage what I have called “pipeline mercantilism,” by directing the flow of oil from the Caspian basin East to China, rather than West to Europe and the US. Their efforts here have largely failed—possibly as they tried out the US/European style of soft-colonialism without success, possibly because of a resurgent Russia, or possibly because they lost interest as Caspian oil reserves are turning out to be far smaller than once theorized. Now they are pursuing a home-grown brand of soft-colonialism, primarily in Africa. Here they are finding greater success, for several reasons: they can fully engage in environments and governments that are shunned, at least officially, in the West because of poor human rights records (Sudan, Ethiopia); they enjoy the far-sighted assistance of Chinese aid agencies, where the Chinese government has decided that subsidizing their oil ventures with free aid will pay off in spades over the long-term as Chinese National Oil Companies get lucrative production sharing agreements over Western rivals; and, it must not be overlooked, the Chinese have an advantage over Western rivals in that there is no history of Chinese abuse and colonialism in Africa. This explains why China is venturing, and succeeding, in Africa, but not how they are turning this into a neo-colonial venture (e.g. “with strings attached”) as opposed to a simple, above-board business venture. Some of this is no more than intuition on my part—we have yet to see (and may never see, due to the failing of transparency in these NOC dealings) exactly what form the exploitation will take. In fact, it may not even be exploitation—China’s key need is to enter into long-term supply contracts for resources at a price that is acceptable now and in the much more resource constrained future. China appears to be using precisely this “long-term contract colonialism” approach, whereby it will agree to pay present prices far into the future for the resources it needs. What is not yet clear is how China will prevent “re-negotiation” of these contracts, as is currently happening with Venezuela, when the producing countries realize they are selling off their natural wealth at half, or even a tenth of the then-prevailing market rate. Will China develop some kind of expeditionary military capability to force compliance? Will they leverage their ability to use means that would (for now, at least) be unacceptable to the West and simply threaten to lob ICBMs at whatever small African nation plays the re-negotiation card? Or will they try to re-work the Aid-Loans-Debt addiction already played (quite successfully) by the West from 1950-2000? It will be interesting to watch and see, but one thing seems quite certain: there will be strings attached.

Second, China’s resource plays underscore the constitutional failure of the ideology of free-trade. China built its current red-hot economy by providing cheaper labor alternatives to manufacturing in the rich West—cheaper in terms of actual wages, as well as human rights standards, environmental standards, and the ability to effectively squash unions. Already, however, China is realizing that it is losing these “cheap labor” jobs to even cheaper countries such as Vietnam. China is realizing that it cannot continue to provide the benefits of economic growth to its citizens—something it continues to need to stave off revolution and justify its constitutional structure—with this same old model. What are China’s options? Well, the option suggested by most pundits in the rich West is to develop a highly-skilled, well educated work force and transition to the knowledge and services economy. The West “suggests” this model, while simultaneously hoping that it continues to work for itself. And here is the problem: this free-trade model is intellectually and morally bankrupt. Here’s the crux of the issue: what makes American, or French (or Chinese) workers inherently better, and therefore deserving of a higher wage, than workers elsewhere in the world?

It may have once been education, but that is no longer the case. It’s pure racism or cultural elitism to suggest that one nation is more adept at learning skills than another. America and Europe may have a head start over the likes of Vietnam or India, but they are quickly closing that gap. Certainly what remains of this gap doesn’t justify the 10x multiplier on American wages.

It may have once been freedom of capital, but that is no longer the case. There are probably fewer capital impediments, and certainly there are fewer other regulatory requirements (minor issues like human rights and the environment) in China than there is in America or Europe. This no longer justifies the 10x wage multiplier.

It may have once been infrastructure, both physical and legal in the form of reliable rule of law, a dependable corporate framework, and solid intellectual property protections. These differences still exist to some extent, but they are also eroding, and are increasingly they are irrelevant as multinational corporations are involved globally, preventing them from enjoying the benefits of a single legal framework. Haier appliances (of China) enjoys US legal framework and physical infrastructure at least as much as GE (of America) is hindered by any lack thereof in China. This no longer justifies the 10x wage multiplier.

Is there anything left to justify the 10x wage multiplier between the US and China—or to justify the desired future wage multiplier between China and the future “cheap labor pool” economy? And, perhaps more importantly, if there is, for now, some justification for such a multiplier, how is that not also subject to the forces of globalization? I can think of one justification that remains to some degree in America—we still seem to be better than anyone else in the world at combining just the right mix of structure and freedom, discipline and creativity, conformity and rebellion to create the kind of synergy that drives business innovation. That, too, seems to be changing, but for now I think it still justifies some kind of multiplier—but this mix is also subject to the forces of globalization. This is the crux of the problem: globalization is, in the end, the process of treating the human element as nothing more than another factor for optimization. It cannot be the sustainable constitutional basis for a Nation or a State. And if the onset of a neo-mercantilism shows anything, it is the dawning realization of just that on the parts of these new mercantilist states. The future presents two valid constitutional platforms for Nation-States: exploitative mercantilism or sustainable self-sufficiency. While I think that only the latter is actually viable over the long term, the former allows for the illusion of maintaining the present “Western” way of life in the form of growing material consumption. For that reason, Nation-States will make the short-sighted choice and choose mercantilism, and that is quite likely to get messy.

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Wednesday, March 12, 2008

Gas Prices & Demand Destruction

Let's talk about oil.

Provided that there continues to be enough to talk about, this may become a regular Wednesday feature. And with oil hitting $110/barrel today, there should be a lot to talk about.

Just one quick point of discussion for today: gas prices.

I paid $3.09 this morning (Denver area). How much does $110/barrel work out to? Well, there are 42 gallons in a barrel. It can't all be refined into gasoline, but that's still a good divisor because the other products produced in addition to gasoline have value as well, roughly the same as gasoline when taken as a whole. So $110/42 is $2.62/gallon. Add in roughly $1 for refining margin, distribution, retail markup, and you get gas at $3.62/gallon. Using the same math, oil at $200/barrel works out to $5.76/gallon, and oil at $300/barrel works out to $8.14/gallon. That might shock the average American, but I don't personally see significant demand destruction, even at $8.14/gallon. That's what gas already costs in much of Europe, and based on my anecdotal experience of driving a thousand miles there in December, that isn't slowing European demand in any significant way. I think most Americans frame the question incorrectly. Ask yourself (and people around you) this: IF you don't already ride the bus to work, how much will a gallon have to cost to make you do so? My commute, there and back, takes about a gallon of gas. I live right next to a light rail station, but it takes a full hour longer to ride the light rail than it does to drive (provided I leave at my usual very early time). Parking down town and the light rail ticket are essentially a wash, so an hour of my time needs to be worth less than a gallon of gas in order for it to make economic sense for me to stop driving. This calculation would change a bit if I could go entirely without owning a car, but not significantly--if I value my time at $50/hour, then, even with gas at $8.14/gallon AND the cost of car ownership, it still makes significant economic sense for me to drive. This is the result of America's huge sunk cost in suburbia, and exactly the reason why I don't see any great threat to gasoline demand, even at $8.14/gallon. Most people can give up their daily Starbucks to even out the difference between current cost and that possible, future cost--and I know which one has a greater inelasticity of demand!

Monday, March 10, 2008

Implementing Rhizome at the Community Level

This final essay in this five-part series, The Problem of Growth, looks at implementing rhizome at a community level. Rhizome does not reject community structures in favor of a “bunker mentality,” but rather requires community structures that embrace and facilitate the principles of rhizome at both the personal and community level. Ultimately a rhizome community is composed of rhizome individual or family nodes—participants who do not depend on the community for their basic survival, nor participants who expect to benefit from the community without contribution. Rather, both the individual and the community choose to participate with each other as equals in a non-zero-sum fashion.

The results-based focus of the community is essentially the same as the individual, because the community consists of individuals who recognize the ability of the community to help them build resiliency and self-sufficiency in the provision of their basic needs, as well as the ability to access a broader network beyond the community.


The first thing that communities can do is to get out of the way of individuals’ attempts to create water self-sufficiency: remove zoning and ordinance hurdles that prevent people from practicing rainwater collection and storage, or that mandate people keep their front lawns watered. Communities can also address their storm water policies—many communities simply direct storm water into the ocean (see Los Angeles, for example), rather than effectively storing it in percolation ponds, or otherwise retaining it for community use. Communities can also facilitate the collection and sharing of water-collection and efficiency best practices, as well as help people to refine ideas from outside the community in a locally-appropriate manner. The possibilities are endless—as with virtually everything else here, the key is that the community recognize the issue and make a conscious effort to address it.


Again, communities should start by getting out of the way of individuals’ attempts to become food self-sufficient. This means eliminating zoning or ordinances that require lawns instead of vegetable gardens, that prevent the owning of small livestock such as chickens in suburban developments, and even (!) that mandate the planting of non-fruit bearing trees (on the theory that they’re messy if you forget to harvest them). But communities can also have a very proactive role in facilitating food self-sufficiency. Community gardens are a great place to start, especially where people live in high density housing that makes individual gardening impracticable. This has been done to great effect in urban areas in Venezuela, for instance. Communities can also foster knowledge and facilitate the sharing of best practices via lecture series, master gardener courses, local gardening extensions, community college courses, or community seek banks for locally appropriate species. Finally, communities should consider encouraging farmers markets to promote local surplus produce, to promote at least regional food self-sufficiency, and to kindle a public appreciation for the quality and value of fresh, seasonal, locally grown foods.

Shelter, Heating, & Cooling

I see the actual implementation of self-sufficient shelters as primarily an individual concern, though communities should certainly consider making communal structure, schools, etc. that conform to these standards. Most significantly, however, communities can work to get government out of the way of people who wish to do so individually. Get rid of zoning requirements that forbid solar installations, graywater, rainwater catchment, or small livestock, or that mandate set-backs and minimum numbers of parking spaces. Pass laws or ordinances that eliminate Home Owners’ Association rules prohibiting vegetable gardens, that mandate lawns, that prevent solar installations, etc. Many Colorado Home Owners' Associations (HOAs) used to ban the installation of solar panels, but Colorado recently passed a statute that prevents HOAs from banning solar—seems like a good idea to me. The Colorado law certainly isn't perfect, but it is an example of a very real step that a few people can take to work with their local or state government to help make your community more self-sufficient. If your HOA prevents you from installing solar hot water (or other solar), why not try to get the HOA to change its rules--there may be many other neighbors who want the same thing, and the more self-sufficient your immediate neighbors, the stronger your community, even if that community is "suburbia." If your HOA won't change, follow Colorado's example.


As with individual defense, I don’t advocate that a community take a bunker mentality and make preparations for a Hizb’Allah style defense of South Lebanon. I think that could work, and I’ve written about it here, but I think it is the second to worst outcome and something to be avoided if possible. In modern America, it seems obvious to me that it is fully possible for a rhizome community to operate within the umbrella of any current state government, as well as the federal government. However, there are other nations—take Colombia for example—where this is probably not possible. It seems like a very real possibility that the permissive environment America currently enjoys could look much more like Colombia at some point in the future. For that reason, this is an issue that must be taken up on a case-by-case basis by local communities. While I certainly wouldn’t advocate an armed militia patrolling the perimeter of the self-sufficiency conscious town of Willits, California (though some American communities effectively do this already), this kind of “extreme” action may well be a basic requirement for a small village in Colombia that is attempting to institute localized self-sufficiency and rhizome structure.

Medicine, Entertainment, & Education

Communities have a myriad of ways to provide for their own entertainment, without resorting to some canned cable-TV product. Also, communities can address the specialized knowledge problems—education and medicine, as well as gardening, and the theory of rhizome, by ensuring that these topics are covered in local school curriculums at all levels (public and private), by making these kinds of learning resources available via a community college, the local library, a lecture series, etc.

Exchange, Information Processing, and Interaction Beyond the Local Community

The possibilities here are numerous, and I'll just name a few possibilities for consideration: Community currency, community paper or blog, community development micro-loans, sponsoring seasonal fairs or festivals, etc. This is an area ripe for innovation and the sharing of best-practices...for additional ideas, see "Going Local" by Michael Schuman.

Practical Considerations in Implementing Rhizome at the Community Level

Just as with implementing rhizome at the individual level, rhizome is not an all-or-nothing proposition for communities. Any step that makes it easier for individuals to move toward rhizome is beneficial. Every community’s situation is different, and the number of ways to combine just the few suggestions provided here is nearly limitless. Customize, come up with new solutions, adapt or reject these ideas as you see fit, and share what works (best practices) and what doesn't with the world in an open-source manner—but more than anything else, think about how to bring your community closer to rhizome, and then act.

Addressing Free-Riders

Finally, every community must address the problem of free riders. Some people will want to benefit from the community without contributing anything at all. In most cases, normative pressures will suffice, and this is especially true of rhizome, where there isn’t a grand redistributive scheme that facilitates some people to leach indefinitely off the collected surplus. Still, the problem will arise, and there will always be a need and a place for charity, within rhizome and elsewhere. The most important factor in determining who is worthy of charity and who is a free-rider is the conscious articulation of the requirements for membership: the community gains strength by helping up its least self-sufficient members, but it should do so by helping them to fish, rather than repeatedly just giving them fish to eat. Rhizome communities need not be heartless—in fact, they shouldn’t be heartless, not just on moral grounds, but on selfish grounds of building a more resilient community—but they should exert normative pressures to demand participation roughly commensurate with capability.


I hope that this five-part series addressing the Problem of Growth has been useful. One of the cornerstones of my personal philosophy that growth is the greatest challenge facing humanity, and that shifting from a hierarchal to a rhizome form of social organization is our best chance to “solve” that problem. I also think that rhizome is valuable as it is a scale-free solution: I think that it can help to solve our international and national problems, but even if that fails it can certainly improve our individual situations. Ultimately, removing ourselves, one at a time, from being part of the cause of humanities problem cannot be a bad thing. As Ghandi said, “be the change that you wish to see in this world.” That seems particularly applicable to a scale-free solution!

Further Reading: See John Robb's post The Resilient Community for another take on this topic.

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Tuesday, March 04, 2008

It's Still the Demand Inelasticity

Oil hits $103.95. Yawn. It seems rather obvious to me that the recent run up in oil prices has come primarily from a declining dollar and fears that inflation will errode the value of conventional (read: fictional) financial instruments. But when CNN runs an article suggesting that, but for all this insane "speculation" in oil, it would be trading at $60/barrel, I need to pull out my broken record player.

It's still the demand inelasticity.

I get the impression that most financial pundits cluttering the news these days have only recently even thought about commodities, and have spent most of their careers thinking about equities. Why is this relevant? Because, with equities, speculation can dramatically over-inflate the price beyond any immediate underlying value. There is no check whereby, within a relatively short time, the owner of that equity must demonstrate that the underlying assets actually have some real value now by selling them (and not merely selling the equity to another speculator). Not so with oil (and other commodities). At the end of the day (or, here, at the expiration of the contract), either a grass-roots consumer is actually willing to shell out cash for an oil-derived product, or not. Speculators cannot drive the price of exchange-traded oil higher than consumers are willing and able to pay at the pump. There is, admittedly, a bit of a lag here (most contract volume is at least a month out, and there is a delay between contract settlement and that price working through the refinery and distribution chain to the end consumer). But oil prices have been above $60 for some time--much longer than is necessary for these higher prices to reach the end consumer. Bottom line: unlike equities, there is a fundamental reality check imposed on commodity speculation. There simply isn't enough volume in long-dated contracts, nor enough spare storage capacity for arbitrageurs, to get around this.

I don't know what school of economics these pundits attended (OK, actually I do, but that's not the point), but where I come from, something is worth precisely what you can get someone else to pay you for it. This applies directly to consumables, and in light of the housing bubbles in parts of the US, a more inclusive definition may be "something is worth precisely what you can get the end-consumer to pay for it." Here, the end consumer seems willing and able to pay $100/barrel for oil. If that changes, for whatever reason, then the price of oil will change, regardless of "speculation."

Monday, March 03, 2008

Implementing Rhizome at the Personal Level

This fourth essay in a five-part series, The Problem of Growth, examines practical steps to implement rhizome at the personal level. In the last installment, I argued for the theoretical requirements of rhizome. Rhizome begins at the personal level, with a conscious attempt to understand anthropological processes, to build minimal self-sufficiency, and to engage in “small-worlds” networks. This installment will outline my ideas for implementing this theory at the personal level in an incremental and practicable way. This is by no means intended to be an exhaustive list of ideas, but rather a starting point for discussion:


In the 21st Century, I think it will become clear that water is our most critical resource. We’ll move past our reliance on oil and fossil fuels—more by the necessity of resorting to dramatically lower consumption of localized energy—but we can’t move beyond our need for water. There is no substitute, so efficiency of use and efficacy of collection are our only options. In parts of the world, water is not a pressing concern. However, due to the fundamental and non-substitutable need for water everywhere, creating a consistent and resilient water supply should be a top priority everywhere. Climate change, or even just periodic extreme drought such as has recently hit the Atlanta area, may suddenly endanger water supplies that today may be considered a “sure thing.” How does the individual do this? I think that four elements are crucial: efficient use, resilient collection systems, purification, and sufficient storage.

Efficient use is the best way to maximize any available water supply, and the means to achieve this are varied: composting (no-flush) toilets, low-flow shower heads, mulching in the garden, etc. Greywater systems (also spelled "graywater," various spellings seem popular, so search on both) that reuse domestic water use in the garden are another critical way to improve efficiency.

Resilient collection systems are also critical. Rainwater harvesting is the best way to meet individual minimal self-sufficiency—dependence on a shared aquifer, on a municipal supply system, or on a riparian source makes your water supply dependent on the actions of others. Rainwater falling on your property is not (at least arguably not) dependent on others, and it can provide enough water to meet minimal needs of a house and garden in even the most parched regions with sufficient planning and storage. There are many excellent resources on rainwater harvesting, but I think Brad Lancaster’s series is the best—buy it, read it, and implement his ideas.

While dirty water may be fine for gardens, water purification may be necessary for drinking. Even if an existing water supply doesn’t require purification, the knowledge and ability to purify enough water for personal use with a solar still or via some other method enhances resiliency in the face of unforeseen events.

Storage is also critical. Rain, fortunately, does not fall continuously—it comes in very erratic and unpredictable doses. Conventional wisdom would have said that long-term storage wasn’t necessary in the Atlanta area because rain falls so regularly all year round that storage of only a few months supply would suffice. Recent events proved this wrong. Other areas depend on short, annual monsoon seasons for the vast majority of their rain (such as Arizona). Here, storage of at least one year’s water supply is a threshold for self-sufficiency, and more is desirable. Significant droughts and erratic rainfall mean the more storage the better—if you don’t have enough storage to deal with a drought that halves rainfall for two straight years, then you are forced back to dependency in such an event at exactly the worst time, when everyone else is also facing scarcity. Where to store water? The options here are also varied—cisterns are an obvious source for drinking water, as are ponds where it is a realistic option, but storage in the ground via swales and mulch is a key part of ensuring the water supply to a garden.


If you have enough water and land, it should be possible to grow enough food to provide for minimal self-sufficiency. While many people consider this both unrealistic and extreme, I think it is neither. Even staunchly “establishment” thinkers such as the former chief of Global Strategy for Morgan Stanley advise exactly this path in light of the uncertainty facing humanity. There are several excellent approaches to creating individual food self-sufficiency: Permaculture (see Bill Mollison’s "Permaculture: A Designer’s Manual"), Masanobu Fukuoka’s “Natural Way of Farming” (see book of the same name), Hart’s “Food Forests,” and John Jeavons’ “Biointensive Method” (see "How to Grow More Vegetables"). Some combination and modification of these ideas will work in your circumstances. It is possible to grow enough calories to meet an individual’s requirements in only a few thousand square feet of raised beds—a possibility on even smaller suburban lots, and I have written about the ability to provide a culinarily satisfying diet on as little as 1/3 acre per person.

An additional consideration here is the need to make food supplies resilient in the face of unknown events. I have written about exactly this topic in “Creating Resiliency in Horticulture”, which basically advises to hedge failure of one type of food production with others that are unlikely to fail simultaneously—e.g. balance vegetable gardens with tree-crop production, mix animal production with the availability of reserve rangeland, or include a reserve of land for gathering wild foods. In Crete, after World War II, while massive starvation was wreaking Greece, the locals reverted to harvesting nutritious greens from surrounding forests to survive. The right mix to achieve food resiliency will vary everywhere—the key is to consciously consider and address the issue for your situation.

Shelter, Heating, & Cooling

Shelter should be designed to reduce or eliminate outside energy inputs for heating and cooling. This is possible even in the most extreme climates. Shelter should also be designed to eliminate reliance on building or maintenance materials that can’t be provided in a local and sustainable fashion. I realize that this is a challenge—but our architectural choices speak just as loudly about our real lifestyle as our food choices. Often, studying the architectural choices of pre-industrial people living in your region, or in a climatically similar region, provides great insight into locally appropriate architectural approaches. Passive solar heating and cooling is possible, with the right design, in virtually any climate—something that I have written about elsewhere.


I’m not going to advocate that individuals set up their own private, defensible bunker stocked with long rifles, claymore mines, and cases of ammunition. If that’s your thing, great. I do think that owning one or more guns may be a good idea for several reasons—defense being only one (hunting, good store of value, etc.). Let’s face facts: if you get to the point that you need to use, or threaten to use a lethal weapon to defend yourself, you’re A) already in serious trouble, and B) have probably made some avoidable mistakes along the way. The single best form of defense that is available to the individual is to ensure that your community is largely self-sufficient, and is composed of individuals who are largely self-sufficient. The entirety of part five of this series will address exactly that topic. Hopefully, America will never get to the point where lethal force must be used to protect your garden, but let’s face it, large parts of the world are already there. In either case, the single best defense is a community composed of connected but individually self-reliant individuals—this is rhizome. If your neighbors don’t need to raid your garden or “borrow” your possessions, then any outside threat to the community is a galvanizing force. More on this next time.

For now, aside from building a resilient community, there are a few things that individuals can do to defend their resiliency. First, don’t stand out. Hakim Bey’s notion of the permanent autonomous zone depends largely on staying “off the map.” How this manifests in individual circumstances will vary wildly. Second, ensure that your base of self-sufficiency is broad and minimally portable. At the risk of seeming like some wild-eyed “Mad Max” doom-monger, brigands can much more easily cart off wealth in the form of sheep or bags of cracked corn than they can in the form of almond trees, bee hives, or a well-stocked pond. Just think through how you achieve your self-sufficiency, and how vulnerable the entire system is to a single shock, a single thief, etc. You don’t have to believe that there will ever be roaming bands of brigands to consider this strategy—it applies equally well to floods, fire, drought, pestilence, climate change, hyperinflation, etc. My article “Creating Resiliency in Horticulture” also addresses this point.

Medicine, Entertainment, & Education

You don’t need to know how to remove your own appendix or perform open heart surgery. You don’t need to become a Tony-award caliber actor to perform for your neighbors. You don’t need to get a doctorate in every conceivable field for the education of your children. But if you understand basic first aid, if you can hold a conversation or tell a story, if you have a small but broad library of non-fiction and reference books, you’re a step ahead. Can you cook a good meal and entertain your friends? Look, human quality of life depends on more than just the ability to meet basic caloric and temperature requirements. The idea of rhizome is not to create a bunch of people scraping by with the bare necessities. Having enough food is great—you could probably buy enough beans right now to last you the next 10 years, but I don’t want to live that way. Most Americans depend on our economy to provide us a notion of quality of life—eating out, watching movies, buying cheap consumables. Minimal self-sufficiency means that we need the ability to provide these quality of life elements on our own. This probably sounds ridiculous to people in the third world who already do this—or to the lucky few in the “West” who have regular family meals, who enjoy quality home cooking, who can carry on enlightening and entertaining conversations for hours, who can just relax and enjoy the simplicity of sitting in the garden. It may sound silly to some, but for others this will be the single, most challenging dependency to eliminate. Again—dependency is the key. I’m not saying that you can never watch E! or go out to Applebee’s. What I am saying is that if you are so dependent on this method of achieving “quality of life” that you will enter the hierarchal system on its terms to access it, you have not achieved minimal self-sufficiency.

Production for Exchange

Finally, beyond minimal self sufficiency, the individual node should have the capability to produce some surplus for exchange because this allows access to additional quality-of-life creating products and services beyond what a single node can realistically provide entirely for itself. This is the point where minimal self-sufficiency doesn’t require isolationism. It is neither possible nor desirable for an individual or family node to provide absolutely everything desired for an optimal quality of life. While minimal self-sufficiency is essential, it is not essential to produce independently every food product, every tool, every type of entertainment, every service that you will want. Once minimal self-sufficiency is achieved, the ability to exchange a surplus product on a discretionary basis allows the individual node to access the myriad of wants—but not needs—that improve quality of life. This surplus product may be a food item—maybe you have 30 chickens and exchange the extra dozen or two eggs that you don’t consumer on a daily basis. Maybe you make wine, olive oil, baked bread, or canned vegetables. Maybe you provide a service—medicine, childcare & education, massage, who knows? The possibilities are endless, but the concept is important.

Practical Considerations in Implementing Rhizome at the Personal Level

Rhizome isn’t an all or nothing proposition—it is possible, and probably both necessary and desirable, to take incremental, consistent steps toward rhizome. Learn how to do more with less. Work to consciously integrate the principles of rhizome into every aspect of your daily life—think about your choices in consumption, then make medium and long-term plans to take bigger steps towards the full realization of rhizome.

And, perhaps most of all, rhizome does not demand, or even endorse, a “bunker mentality.” The single greatest step that an individual can take toward rhizome is to become an active participant in the creation of rhizome in the immediate, local community. That, of course, is the subject of the next, and final, installment in this series.

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